Old TV series are your Friends in Twilight Zone of the market
• Classics have lessons for retail investors about diversification, surprises and noble rescuers
Berkshire Hathaway vice-chairman Charlie Munger advises students to cultivate multidisciplinary thinking. “I went through life practising the multidisciplinary approach,” he tells them, “and that made it more fun, more constructive, and it made me enormously rich.”
Getting enormously rich while having more fun doing something different is the sort of advice one can relate to, so last week I stopped watching Bloomberg and began watching reruns of old television series to see if they held any lessons for the retail investor, starting with
Star Trek. After all, who wouldn’t want to be more like Spock when it comes to investing: logical to a fault, never losing his cool and thus able to make unemotional decisions in the face of great stress.
“But while the creature we study in traditional economics is similar to Spock, who found humans to be odd creatures with peculiar weaknesses,” says Richard Thaler, “the world is full of people that are more like Homer Simpson — a little chubby, with a poor memory who has trouble with long division, much less determining the present value of a stock”.
In other words, more like Captain Kirk, who, while not a Homer, is human and therefore more impetuous in his decisionmaking than Spock. In almost every show Kirk has to make some big decision in the face of uncertainty, turbulence and either too much data or none at all. Surprisingly, he often makes the right call. But one can’t help wondering why he doesn’t leave the decision-making to Spock’s computer-like reasoning, which, in the long run, would surely triumph over hunches.
While many researchers, including machine learning experts and data scientists, recognise the role intuition plays in breakthrough thinking, it is nothing more (or less) than pattern recognition, which requires what Daniel Kahneman calls “sufficiently stable regularities” over long periods of time. Which means it isn’t something you can rely on when dealing with aliens — or the stock market.
Having said this, it’s worth remembering that not everything to do with aliens (or the market) has to have a logical explanation, something Spock acknowledges when he says things like: “Captain, you almost make me believe in luck.” Another character in Star
Trek who we can learn from is Dr Leonard “Bones” McCoy, with his “I’m a doctor” meme. As in, “I am a doctor Jim, not a bricklayer”. “I’m a doctor, not an escalator.” “I’m a doctor, not an engineer.” “I’m a doctor Jim, not a coal miner.” Something doctors, brick layers, engineers and coal miners might want to consider before they decide to take on Mr Market. To quote Scotty: “There be whales here!”
Gunsmoke, the longest-running show on US television, centred on the high-minded Marshall Dillon, who was always ready to rescue some poor soul being victimised by bad men or falsely accused of a crime. The format has two fundamental lessons for the retail investor. The first is the criminals were usually overconfident and overeager for a quick kill, allowing Dillon’s careful, methodical approach to win the day. The second lesson comes from the fact that there is always a rich, greedy banker, cattleman or dangerous outlaw taking advantage of a helpless farmer or some other innocent who needed to be rescued. And while Dillon was always on hand to do just that, there is no Marshall Dillon in the stock market.
The Twilight Zone, which ran from 1959 to 1964, had all the characteristics of a horror movie: the dark and what it hides, creepy things, spooky music and the certainty that something bad is about to happen. Not unlike the stock market with its unknowns, bearish voices and persistent fear of loss. Despite knowing that something nasty can happen at any time, when it does it always comes as a bit of a surprise.
Michael Sincere provides us with two great lessons from The
Twilight Zone. The first comes in the episode titled To Serve Man, where earthlings welcome nine-foot aliens from outer space who arrive with wonderful gifts, including an end to famine, a nuclear cloaking device and a new energy source. Everyone thinks it’s a golden age. Soon, people are going to the alien planet. Then one of the aliens accidentally leaves behind a book, and Michael Chambers, a decoding specialist, translates the title to mean To Serve Man.
Later, as Chambers walks up the steps to board the alien spaceship, an assistant comes running screaming, “Mr Chambers, don’t get on that ship! The rest of the book, To Serve Man … it’s … it’s a cookbook!” Chambers tries to escape but the aliens stop him, and the ship takes off. The lesson for investors: by the time you realise Mr Market is not your friend he will probably have eaten you for lunch.
In another episode, The Fever, Franklin and his wife arrive in Las Vegas after she wins a contest. Franklin hates gambling and is suspicious of the all-expenses-paid trip. Nevertheless, when a drunken man hands him a silver dollar and insists he play the slot machine he does, and wins big. Amazed by the free money, Franklin keeps playing and playing until eventually he loses it all. At which point he has a nervous breakdown and has to be removed from the casino.
That night, in his hotel room, Franklin hears the slot machine repeatedly calling his name as it rolls towards him. Cowering against the window, he falls to his death. The lesson for investors: if the market calls your name in the middle of the night, you are either obsessed or in The Twilight Zone. The 238 episodes of Friends, which ran from 1994 to 2004, also have an overarching lesson for investors, this time on the value of diversification. By spreading the focus among Monica, Ross, Rachel, Chandler, Joey and Phoebe the creators gave themselves more to work with. Tired of the Ross and Rachel saga? Monica and Chandler start an affair! Bored with Monica and Chandler? Joey is tormented by unrequited love.
As John Templeton advised: “Diversify in stocks and bonds. As in much else, there is safety in numbers.”
REMEMBER THAT NOT EVERYTHING TO DO WITH ALIENS (OR THE MARKET) HAS TO HAVE A LOGICAL EXPLANATION